Case Note & Summary
The case involves an appeal by the Revenue under section 260A of the Income Tax Act, 1961 against the order of the Income Tax Appellate Tribunal (ITAT) for the assessment year 1990-91. The respondent-assessee, a public limited company, carried on business in two separate units: a paper division and an agro division, both of which were 'eligible business' within the meaning of section 32AB of the Act. The assessee maintained separate accounts for each unit and drew up separate profit and loss accounts and balance sheets in accordance with Part II and III of Schedule VI of the Companies Act, 1956. During the relevant previous year, the paper division earned net profits of Rs.4,42,22,227 after adjustments under section 32AB(3)(i) to (vi), while the agro division incurred a loss of Rs.97,80,642 after similar adjustments. The assessee had spent Rs.1.42 crores on new machinery. The Assessing Officer computed the deduction under section 32AB by setting off the loss of the agro division against the profits of the paper division, thereby reducing the deduction. The Commissioner of Income Tax (Appeals) reversed this, holding that the deduction should be computed on the profits of each eligible business separately. The ITAT confirmed this view. The Revenue appealed, raising the substantial question of law whether the Tribunal was right in directing the Assessing Officer to allow deduction under section 32AB on the basis of profits from the paper division alone without considering the loss of the agro unit. The High Court analyzed the provisions of section 32AB, which allows a deduction for investment in new plant and machinery out of profits of eligible business. The court noted that the section requires the assessee to maintain separate accounts for each eligible business and compute profits accordingly. The court held that the deduction under section 32AB is to be computed on the profits of each eligible business unit separately, and the loss of one unit cannot be set off against the profits of another unit for the purpose of this deduction. The court emphasized that the purpose of the section is to encourage investment in new assets, and setting off losses would defeat that purpose. The court also noted that the section does not provide for aggregation of profits and losses of different eligible businesses. Accordingly, the High Court dismissed the appeal, answering the question in favor of the assessee and against the Revenue.
Headnote
A) Income Tax - Deduction under Section 32AB - Investment Allowance - Computation of Profits - The issue was whether deduction under section 32AB of the Income Tax Act, 1961 should be computed on the profits of each eligible business unit separately without setting off losses from another eligible business unit, where separate accounts are maintained. The court held that the deduction is to be computed on the profits of each eligible business unit separately, as the section contemplates computation of profits of each eligible business independently, and the loss of one unit cannot be set off against the profits of another unit for the purpose of deduction under section 32AB. (Paras 1-10)
Issue of Consideration
Whether deduction under section 32AB of the Income Tax Act, 1961 is to be computed on the profits of each eligible business unit separately without setting off losses from another eligible business unit, where separate accounts are maintained.
Final Decision
The High Court dismissed the appeal, holding that the Tribunal was right in law in directing the Assessing Officer to allow deduction under section 32AB on the basis of profits earned by the assessee from its paper division alone, without considering the loss of the agro unit.
Law Points
- Section 32AB of the Income Tax Act
- 1961
- deduction for investment in new plant and machinery
- eligible business
- separate profit and loss account
- unit-wise computation
- set-off of losses
- purposive interpretation
